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Overview of Korea’s development experience

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Development Overview
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Public Administration

Regulatory reforms 1

Establishment of the Korean Government and the Rhee Syngman Administration[1]
 
The Rhee Syngman administration witnessed some of the most tumultuous years in contemporary Korean history, including the chaos that erupted in the aftermath of liberation from Japanese colonial rule, the establishment of the Korean government, the Korean War that lasted from 1950 to 1953, and the project of postwar reconstruction. The Rhee administration relied heavily on aid and grants from the United States for its operation, as the then war-torn Korea still lacked what could be suitably called a private sector. Thus most of the functions and services required by the newly born republic came from the government-led public sector.

A defining characteristic of governance in Korea during this period was the emergence of rents created by regulatory policies dependent on U.S. aid and grants.[2] Large amounts of wheat began to come into Korea free of charge under U.S. public law (Title 48 of the U.S. Code). Companies that were authorized by the Korean government to process the wheat reaped far greater profits than companies not so authorized. Another key source of regulation rents was the exchange rate of the U.S. dollar. Given the absolute shortage of foreign reserves in Korea at that time, the fixed exchange rate diverged dramatically from the market exchange rate. It was this difference in the two exchange rates that enabled individuals or companies with access to the foreign reserves in dollars to enjoy much greater profits than those lacking such access. Nevertheless, the state of affairs in Korea remained too chaotic and vulnerable for the Rhee administration to attempt to translate these rents effectively into its economic development strategy, let alone establish systemic regulatory policies in the first place.
 

 
[1] Ahn Munseok, “National Development and Regulation: An Overview of Regulatory Reforms in Korea,” Korean Journal of Government Studies, vol. 8, no. 2, 2002: 6-7.
[2] A rent principally means an amount of money one pays for using, for a fixed period of time, a piece of land or part of premises owned by someone else. Economic rents, however, also refer to all the gains that a supplier reaps in excess of opportunity costs because the quantity of goods supplied is scarce or inelastic like land. Regulation rents are specifically rents created by regulatory policies. Rent-seeking behavior based on regulations necessarily gives rise to social inequality and inefficiency, thus raising the demand for regulatory reforms.
 

Source: Korea Institute of Public Administration. 2008. Korean Public Administration, 1948-2008, Edited by Korea Institute of Public Administration. Pajubookcity: Bobmunsa.